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Will You Buy the Largest IPO of All Time?

Facebook's debut breaks records. Will it also break portfolios?

On Friday,Fool.comwill host a live chat from noon to 3 p.m. EDT to cover Facebook's much-anticipated IPO. Several of our best tech analysts will field and respond to user questions about Facebook, the day’s action, and what it all means for investors. So make sure to swing byFool.comon Friday for what should be one of the most high-profile investing stories of the year.

Are you ready for the largest IPO of all time? Well, you'd better be. It's coming Friday. After a seemingly endless parade of analysts, expectations, and grand proclamations, Facebook is finally making its grand debut. It's been eight years in the making -- 99 months to be exact -- but investors everywhere can finally own a piece of the world's largest social network. No matter what you choose to do with the decade's hottest IPO, you deserve as much information as possible. In that spirit, I've put together a series of graphs that puts Facebook's historic offering in perspective. You might be surprised at where Facebook stands in the sweep of corporate history.

Biggest of all timeOne of the recurring threads beneath all this frantic Facebook chatter is a debate over whether it's really the largest IPO of all time. The answer will depend on what measure you use. Most analyses of IPO size use the value of shares offered to the public, and by that metric Facebook falls short. The largest American IPO by initial offer size was post-bankruptcy General Motors(NYSE: GM), which offered just over $23 billion of itself to a skeptical public in 2010 and has since lost over a third of its initial valuation.

But there's more than one way to value an IPO. Most of us are more interested in how much value that initial offering places on the entire company. By that measure, Facebook is head and shoulders above General Motors and every other "biggest" IPO that's come along in recent years:

Sources: Wolfram Alpha and news reports.

Let me note that from here on out I'll be anticipating a $100 billion IPO market cap for Facebook, which skews a little toward the high end of where it's projected to start. Since Facebook's already upped the price range for its IPO shares in anticipation of strong demand, the final score might be quite a bit higher.

Now, Facebook certainly bests these companies in terms of its initial valuation, but let's take this a step further. We know Mark Zuckerberg started the site at Harvard in February 2004. Now, 99 months later, it's worth $100 billion. That's an incredible amount of value to create in a relatively short time, but I didn't truly appreciate how outsized that valuation was until I compared it to these former IPO champions and the length of time each took from founding to reach the IPOs that earned them so much.

Sources: Wolfram Alpha and publicly available corporate histories.

The amount of value Facebook's created per month of its life so vastly outpaced its IPO "peers" that I had to cut the graph off at the halfway point in order for most of the other results to even show up. AT&T Wireless, which has gone through a complex series of mergers, acquisitions, and rebrandings since its birth as McCaw Cellular, was one of the fastest to the public markets and had one of the highest levels of investor interest, and yet its IPO resulted in less than half the value per month of Facebook. No other company comes close to Facebook's more than $1 billion in value created per month of its life.

A competition of high-tech peersBut wait! None of these companies are really in the same class as Facebook, are they? You're not likely to see Facebook regularly compared to GM or UPS, but Apple(Nasdaq: AAPL), Google(Nasdaq: GOOG), and Microsoft(Nasdaq: MSFT) all make ideal peers for the Silicon Valley social network. How did Facebook's tech peers begin their public lives? In every case (even Google's), far more humbly:

Sources: Historical news reports and company histories.

Facebook's numbers would skew this graph so wildly that you'd be hard-pressed to see AOL(NYSE: AOL) at all -- not that it's easy now. The onetime hottest property during the dot-com boom went public way back in 1992 with a tiny, tiny $62 million market cap, a public debut that would later be dwarfed by virtually every major dot-com company (and plenty of trivial ones) that issued shares during the bubble years. Apple and Microsoft were '80s kids, debuting in 1980 and 1986, respectively, but they represented high-water marks for high-tech interest in their days.

If you'd like to think that Apple was more reasonably valued than Facebook at their respective debuts, you're wrong. Facebook's IPO valuation is actually in line with many of its high-tech peers, including two that didn't wait for profitability before going public:

Sources: Historical news reports and Wolfram Alpha.

With the benefit of hindsight, we can see that most of these companies were bargains at the time, and continued excellence has brought early shareholders some amazing gains:

With the exception of AOL, which has fallen on some hard times of late, and Amazon.com, a longtime high-valuation stock, major tech companies that survive the ravages of age have all seen their valuations shrink and their gains explode. Google, with the least growth of the bunch, has still been a six-bagger for IPO investors. Apple has earned its earliest investors 290 times their initial investments, while Microsoft has a cumulative return of more than 33,000% since going public.

Is there anything left to "like"?For those of you expecting huge returns from Facebook, here are a few sobering numbers to consider -- assuming, of course, a $100 billion debut that isn't pumped to the moon by rabid demand. For your investment to offer Google-like returns, Facebook would need to be worth more than $600 billion, a market cap no company has held for very long. To approach even Yahoo!'s post-IPO growth, you'd need Facebook to be worth more than $2 trillion. And to become the next Microsoft in terms of share-price appreciation, Facebook would have to someday be worth $3 quadrillion dollars. Good luck with that.

Perspective is important when considering the growth prospects of any hot IPO, and Facebook's public debut will demand it. Do you believe that Facebook can be the next Google, AOL, Apple, or Microsoft? I don't -- but I'd love to hear your opinions. Let me know what you think by leaving a comment below.

Author

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.